Mervyn King was in the news recently, criticising the progress Britain was making towards Brexit.
The former governor of The Bank of England had some disobliging comments for the politicians negotiating our extrication from the European Union.
Unremarkable by itself. Even though he supported the Leave vote, he is not alone in expressing frustration at where two years-plus of talks have led.
What caught my eye in his BBC interview was this, almost throwaway, paragraph.
“The biggest economic problems facing the UK are, we save too little, we haven’t worked out how to save for retirement, the pension system is facing I think a real challenge, we haven’t worked out how to save enough for the NHS and finance it, we haven’t worked out how we’re going to save enough to provide care for the elderly.”
Brexit or no Brexit, this has been the mantra of the pensions industry and concerned folk looking on for the last 30 years or so.
That’s how long Punter Southall Group has been in business so we’ve got one or two insights into Lord King’s summary.
Computing power was coming into its own when we set out in 1988. The move from mainframe to PC’s was one of those technological leaps that brought new possibilities.
Back then, defined benefit schemes were in surplus and the British pension industry was held up as an example of how to save. A number of things changed that. Among them pension holidays, actuarial assumptions, taxing of pension dividends and benefits guaranteed by legislation. I know this has been exhaustively debated but the biggest factors are, simply, people living longer and failing to save enough.
The headlines have scarcely improved over three decades. Ten years since the credit crunch (subject of the next blog), and pension deficits still make for reliably grim reading.
I would like to add a note of cautious optimism. Actually, deficits have shrunk after interest rates ticked up (over the long-term, ten years or more, rather than the short-term, monthly rate settings most people keep one eye on for things like the cost of mortgages).
Indeed, our view is that 80 per cent of defined benefits pensions can be funded over the next ten to fifteen years.
Surveys – like this one – point to people not saving enough but is this changing? Auto-enrolment and wider defined contribution pensions means the number of DC savers is set to overtake the number of DB members in the near future. This means this group is increasingly able to access investment strategies previously closed to smaller funds.
Technology, in the shape of new platforms, is also having a transformative impact now, as it did 30 years ago. Saving is more flexible than it was ever before and this trend will continue.
And it’s hard to miss an ad, meme or just plain pensions talk or advice online, now. The Money Advice Service offers impartial advice on just about every aspect of financial life. Our own Aspire is an example of the rise of digital advice services. While pensions and savings will always be daunting for many, a greater number are better informed or, at least, have a better opportunity to find out more. This has to be a step in the right direction.
Not sure I – or others – have the answers for future funding of the NHS and the growing bill for social care except to say that people living longer has broader consequences with which society is still grappling.
Bismarck invented pensions in the 19th century, largely as an incentive to his countrymen to join up on the promise of financial support when they were de-mobbed (to be claimed when they reached the-then ripe old age of 70).
A centralised government solution to providing for old age still has a place but now, more than ever, many have choices few thought possible even ten, let alone 30 years ago.
Mervyn had a point but it might be that, although not fully formed, the answers are now starting to emerge.